In today’s briefing:
- Key Points We Should Know Regarding the Current Status of EOFlow
- EOFlow (Further) Tests Investor Patience
- KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- JSR Corporation (4185 JP): Risk/Reward as SAMR Approves Broadcom/VMware
- KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea
- CareNet (2150) – Watch the TOPIX Birdy (Smallcap)
- Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light!
- Zensho Holdings (7550) – ¥50bn Offering Is Not Meant For You
- OreCorp: Silvercorp Bumps. Goyder Now Supportive
Key Points We Should Know Regarding the Current Status of EOFlow
- It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
- EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
- If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.
EOFlow (Further) Tests Investor Patience
- Back on the 25 May, when Medtronic Plc (MDT US) enter into a SPA with EOFlow (294090 KS)‘s CEO, with a follow-on Tender Offer, the whole construct looked pretty clean.
- Then in August Insulet Corp (PODD US) launched its lawsuit, which in hindsight, should have been expected. Then earlier this month, news surfaced concerning a stock-backed loan to the CEO.
- Now the CEO is selling, presumably to repay his collateralized loan. Shares are down 38% since the resumption of trading, and are now at a whopping 122% spread to terms.
KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- There are 17 inclusions and 17 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 14 December.
- While most of the inclusions were expected, there are many differences on the deletes. Trading the strategy becomes tougher with the short sell ban in place.
- The adds have started to outperform the deletes over the last month and there could be more movement over the next 3 weeks to implementation.
JSR Corporation (4185 JP): Risk/Reward as SAMR Approves Broadcom/VMware
- JSR Corp (4185 JP)’s pre-conditional tender offer from JIC is conditional on several regulatory approvals, notably China SAMR approval. JIC can waive the conditions precedent.
- A takeaway from the Broadcom (AVGO US)/VMware Inc Class A (VMW US) SAMR clearance is that if JIC is willing to commit to restrictive conditions, SAMR approval can be obtained.
- On 6 November, JSR reiterated a late December tender start. However, with time fast running out, the likely scenario is SAMR conditional approval with a delayed tender start.
KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- There will be 7 additions and 7 deletions for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX EQUITY) at the December rebalance that will be implemented on 14 December.
- The rebalance is on expected lines, though the index committee decided not to add Youngpoong Paper (006740 KS) to the index. Not really a big surprise given the price move.
- HDC Hyundai Development Co-Engineering & Construction (294870 KS) is a surprise delete and there is not much short interest that could cover against the passive selling.
Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea
- As the ex-dividend date in Korea has been before the dividend is determined, SSFs trade at a discount based on the anticipated dividend rather than adjusting dividend settlement proceeds explicitly.
- The current dividend arbitrage yield for the financial companies can be seen as reflecting the postponement of the ex-dividend date to the next year.
- We should pay attention to those with a significant dividend arbitrage yield but that did not amend their articles of incorporation earlier this year.
CareNet (2150) – Watch the TOPIX Birdy (Smallcap)
- Carenet Inc (2150 JP) is a “medical contents” provider. It acts as a distributor of information to doctors and medical practitioners over the internet, and also consults with pharmaceutical companies.
- On Wednesday, they announced that they were going to move from TSE Growth to TSE Prime as of 29 November.
- At ¥31bn market capand this may turn people off, but it may be a treat for some. There is a reason why there are some big holders.
Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light!
- Just past the 22-year anniversary of the deal-break from a previous takeover involving the large OTC drug firm, Taisho Pharmaceutical Holdin (4581 JP) announced an MBO Takeover for the company.
- Set at a 55.5% premium, it is not particularly surprising as a deal. The family is rolling in their interests. It looks like estate planning. The Board supports and recommends.
- Unfortunately, like many recent MBOs, this one is light at 0.85 book where net cash, securities, and net receivables and inventory make up 68% of the takeover price.
Zensho Holdings (7550) – ¥50bn Offering Is Not Meant For You
- Zensho Holdings (7550 JP) has had a great couple of years in share price movement. And this year is seeing earnings explode to new highs. M&A and FX.
- Now they want to build a “war chest” equivalent to 4% of market cap to go do more M&A.
- This seems opportunistic. And the shareholder register is extraordinarily lopsided. There is really only one buyer for this deal.
OreCorp: Silvercorp Bumps. Goyder Now Supportive
- On the 6 August, Canada’s Silvercorp (SVM CN) offered shareholders of Western Australian-based miner OreCorp (ORR AU) A$0.15 in cash and 0.0967 new Silvercorp shares, by way of a Scheme.
- The Scheme Booklet was despatched on the 6 November with a Scheme Meeting on the 8 December. The IE viewed terms as fair.
- Silvercorp has now bumped the cash terms to $0.19/share from $0.15/share. All other terms remain unchanged. Tim Goyder (5.14%) is now supportive. Done and done.
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